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12. Monetary policy can prevent major business swings, reduce the uncertainty in long-term contracts, and eliminate...

12. Monetary policy can prevent major business swings, reduce the uncertainty in long-term contracts, and eliminate monetary instability as a source of economic instability. True or False A sale of government bonds to the public bu the FRS will increase the rate of growth of the money supply. True or False

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12. Monetary policy seeks to ensure price stability. The main objective of price stability is to ensure and protect the exchange rate sustainability by maintaining price stability, which ultimately means the attainment of a stable and low inflation. Monetary policy actions to minimize the damage that financial instability can do to the economy. Hence, the statement is True.

The FRS can affect the money supply by conducting buy & sell of bonds in open market, which affects the federal funds rate. In open operations, the FRS buys and sells government securities in the open market. If the FRS wants to increase the money supply, it results in buying the government bonds.Hence, the statement is False.

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